Paying Your Taxes and Insurance Through Escrow

by Kevin Graham, September 19, 2017 in Insurance

When you pay your mortgage, do you know everything that’s included in your mortgage payment? Often, it can be more than just the standard monthly principal and interest. When you own a home, you are also required to pay for your annual property taxes and home insurance. Lenders often require you to deposit money into an escrow account to make sure your taxes and insurance will be paid.

We’ll go over what an escrow account is and when you have to have one. Then we’ll touch on the implications for your property taxes and homeowners insurance.

What’s an Escrow Account?

An escrow account – a sort of savings account – is set up to protect the lender from borrowers who miss payments toward their real estate taxes and insurance premiums. If these are not paid, local tax authorities may place a lien on your property. So if the property is being sold and taxes are owed, it may cause problems until the party who is owed is paid.

Do I Have to Put Taxes and Insurance in Escrow?

It’s possible to avoid escrow and pay your own taxes and insurance under certain circumstances. This will make your monthly mortgage payment lower, but you’ll have to make separate payments for property taxes and homeowners insurance.

If you’re buying a home, an escrow account may not be required with a high enough credit score and a down payment of 5% if you have a conventional loan and a 10% down payment if it’s a VA loan. In New Mexico, a 20% down payment is required no matter the loan type.

If you’re looking to have your escrow account removed after you’ve been making payments for a while, Quicken Loans has a few requirements.

• You need a minimum equity amount of 10% for removal from a VA loan. Conventional loan escrow removal requires 20% equity.
• You need a FICO credit score of 680 or higher on a conventional loan and 720 or greater on VA.
• If your mortgage is backed by Freddie Mac or the VA, the loan must be at least a year old. Fannie Mae loans must be two years old.
• You must be current on your mortgage. This means you must have no 30-day late payments in the last year. Fannie Mae requires no 60-day late payments in the last two years.
• You have to have a positive escrow balance.

FHA and USDA loans always require an escrow account.

You don’t always have to have one, but there are certain advantages to having an escrow account.

Why Should I Have an Escrow Account?

Paying taxes and insurance through escrow can be a great convenience. Mortgages can be complicated enough, and this is one less thing homeowners have to worry about. With an escrow account, your property tax and homeowners insurance payments are split into more manageable monthly chunks paid throughout the year.

Some people find it easier than having to write a large check in the summer and a larger check in the winter for their property taxes, as well as other checks to cover insurance premiums.

Are Escrow Payments Tax Deductible?

Your property taxes are generally tax deductible on your state and federal taxes. If you have any doubts regarding deductibility, please consult a tax professional.

Assuming your property taxes are deductible, they’re still deductible if you’re paying them into an escrow account. You’ll get a 1098 from your lender or servicer at the beginning of each new year, which will help you report the previous year’s deductible tax payments to the IRS as well as state authorities.

Why Do I Receive a Property Tax Bill if I Have an Escrow Account?

If you’re paying your property taxes through your mortgage servicer, you may wonder why you still get a bill (or statement) from your local taxing authority. In most cases, this is just for your awareness. Your servicer generally gets a copy of the bill and will pay it.

There are a few tax offices in Pennsylvania that don’t automatically send your tax bill to Quicken Loans. If this is the case for you, you’ll be notified to send us your tax bill.

Occasionally, you may receive a one-time or short-term supplemental property tax bill. We don’t collect for these. You’ll have to make an individual payment to your taxing authority.

Switching Homeowners Insurance Policies on Escrow

If you switch homeowners insurance policies before your policy expires, you may receive a refund from your former carrier that’s prorated for the portion of the insurance that went unused for the year. While it may be tempting to spend this refund check, if your policy is paid through escrow, don’t.

Quicken Loans pays for your homeowners insurance policy up front and spreads the payments out for you over the course of the year. If you switch insurance providers and don’t send the refund check to us, we’ll end up paying both policies, which will result in a shortage in your escrow account. When that happens, you’ll have to make up the difference the next year. You can avoid this by sending us the fully endorsed refund check. We have a previous blog post on switching homeowners policies.

Things to Keep in Mind

Be aware that even if you have a long-term fixed-rate loan, your mortgage payment can vary. The principal and interest portion of your payment is fixed, but tax assessments may change and insurance premiums may fluctuate. This makes your entire payment vary.

To be able to cover possible shortages in payments, lenders require an extra two months’ worth of payments be kept in the account as a reserve cushion. Tax assessments and premium adjustments can happen any time during a 12-month period, and lenders will have to cover those shortages either using your escrow account or their own money. If they use their own money, they will recover the shortage by requiring an increase in the amount you deposit monthly into escrow.

Also, when building a new home, understand that your escrow payments may spike once construction has been completed because when lenders calculate escrow, the amount is based on the last disbursement. The last disbursement may only reflect the taxes on the land (if there were no previous house on that land). When construction is complete, the land is now worth more because of the existence of the home; therefore, escrow will be higher.

Lastly, keep an eye on your escrow account since it’s always possible for mistakes to occur. It may be a case where the loan is transferring possession from one lender to another and, in the interim, wires are crossed and the tax bill gets paid by both lenders or by neither. As long as you have made your payments, the onus is on the lender to straighten things out. But the best way to tackle this is to keep a close eye on how your money is being managed.

If you’re unsure whether you should escrow, talk to an experienced mortgage banker who can answer all your questions.

How to Control Household Spending with Your Spouse

by Andy Hill, June 13, 2018 in Money Matters

When we mix marriage and money, it can either be a recipe for disaster or financial success. It’s really up to us. With a proactive attitude, perseverance and some open communication, a financially harmonious relationship can be ours if we want it.

For a lot of us (me included), it’s not always marital roses and sunshine when money is involved. In the age of  “1-click ordering,” our desires can often outpace our income. These unplanned online purchases or any other impulse buy can cause momentary joy, but can pull us away from our long-term financial goals and cause fights about money.

Here are seven actionable tips that will help you and your spouse align your spending appropriately and start to work together as a team.

Become Clear on Your Own Financial Goals

Our actions and words can hold a lot more power when they are backed up by a goal. Decreasing household spending is a tactic that will quite often help you meet a multitude of goals, but defining a specific personal finance mission is most important.

For example, let’s say you have $12,000 of student debt and you want it out of your life. Now you have a goal that backs up your desire to control your household spending.

Be sure to get SMART with your goals as well:

• Specific
• Measureable
• Actionable
• Realistic
• Time-Based

Here’s a SMART declaration: “I want to pay off my student loan balance of $12,000 in 24 months.”

After you assess if your goal is realistic, you’re ready to start taking action. 

Ask Your Spouse to Share Their Goals with You

This can be an excellent opportunity to connect with your spouse. When a person shares their financial dreams, they are opening up their heart to you. They are showing you what is most important to them.

Sit down with your spouse, turn off your cell phone and ask them to share their goals. Truly listen.

Perhaps you’ll discover that your goals may align. You may even learn something you never knew. These are the conversations that allow your financial relationship to really grow.

See Where Your Goals Intersect

Let’s say your spouse wants to pursue a small business opportunity, but always just considered it a pipe dream. This is your chance to get your significant other fired up about both goals. When both of you are working toward a common goal, your chance for success rises exponentially.

In this scenario, decreasing your household spending can eliminate those dreaded student loans and provide capital for a small business venture.

Ask yourself and your spouse why you want to pursue these goals. Some potential answers could be:

• Reducing your stress
• Feeling proud of building a business
• Using the extra money to have more fun

Your individual answers will help you both drive toward your goal together.

Budget Together

If you’re not aware of how much you’re spending each month, then you’ll never know how to improve your finances. Start your journey of financial improvement by getting a gauge of your current expenses.

Utilize a budgeting system for couples, such as Honeyfi, which allows both you and your spouse to feel empowered. A system like this will automatically sync your bank and credit card accounts so you can see your spending. This way you can make improvements and move closer to your collective financial goals.

If you’re not into finance apps, not a problem. Grab a copy of your last bank or credit card statement and start to analyze the expenses. Look for trends, patterns and start to add up your typical monthly expenses.

Once you’re budgeting with your spouse, your financial future starts to become clearer.

Practice Saying “No”

It’s never fun to miss out on fun experiences or buying the trendiest gear, but if we want to improve our financial future we need to learn to start saying “no.”

It’s not all doom and gloom though. When we say “no” to one thing, we’re saying “yes” to another. For example, you may have to say “no” to impulse shopping a couple years, but you’re saying “yes” to saving money for your future small business.

Will you feel happier owning your business or having the freedom to shop as you please? Only you can answer that.

When Times Get Tough, Focus on the “Why” 

As you’re working on controlling your spending to hit your financial goals, there will be plenty of setbacks, obstacles and marital disagreements along the way. Do your best to focus on why you started down this path to begin with.

If you want to eliminate the student debt in your life so your days are less stressful and more joyful, remind yourself of that when you feel like giving up.

“When I’m student debt-free, I will feel less stressed and happier knowing that I don’t owe Sallie Mae another dime!”

Or in your spouse’s case:

“I will feel proud and confident when I’m managing my own business. That’s why I’m sticking to this!”

Celebrate Your Wins

Some financial goals can take quite a bit of time. That’s why it’s important to celebrate along the way. No accomplishment is too small.

• You’ve met three months in a row for your budget reviews? Congrats! Time to party!
• The student debt is down to $5,000? You’re a rock star!
• You’ve saved up $2,500 for your future small business savings account? Cheers!

Take time to do the activity you two love the most. Congratulate each other for your teamwork, partnership and love.

And when the big day comes when you’ve accomplished your monster goal, go crazy! Take a picture together, shoot a video, celebrate with family and shout it from the rooftops. The two of you are creating the lives you’ve always dreamed of and you’re doing it together.

What My Father Taught Me About Money

by Doria Lavagnino, June 11, 2018 in Money Matters

Let’s face it: Most of our parents play a major role in how we relate to money. They are often our first financial advisers, ideally giving us thoughtful feedback and guidance on how to handle — and not handle — our personal finance.

My own father was the most important financial literacy teacher I’ve had. His life embodied financial struggle and survival, but he eventually reached a position of strength.

When he came to this country in the mid 1950s — a decade after World War II — “financial literacy” didn’t formally exist. He had been raised in Italy, then a war-ravaged country, where he endured famine, nightly bomb raids, and the wrath of fascism.

All the same, he yearned for a bright future. He was young, hungry for success, and eager to have a shot at the so-called “American dream.” Perhaps most important, he had nothing to lose.

His financial life was an epic journey. He started with empty pockets and ended up as part of the one percent. This group — sometimes vilified, but often comprised of honest and hard- working entrepreneurs — shouldn’t be thrust into the same category as disingenuous businesses that commit fraud. They are not one in the same.

As the president and co-founder of CentSai, a financial literacy platform, I often return to the basic money lessons I learned from my dad. There are no guarantees of financial independence for anyone, but these have helped me along the way:

Don’t Live Beyond Your Means

For several years when my dad was getting his business off the ground — introducing a soil erosion product called a gabion to the United States — he could barely make ends meet. He initially lived in a dank room at the YMCA on 34th Street in New York City, then later in a shoebox apartment in the Bronx.

He had no discretionary income. He had to learn to budget to survive. He watched his expenses like a hawk. This budgetary discipline remained throughout his life. Even when money was no longer an immediate concern, he would still drive past a gas station that was offering gasoline at a price five cents higher than what he would pay elsewhere. “Why should I waste money?” he would ask me. Being young and impatient, I preferred convenience, but watching these small decisions shaped me.

Money matters, and anyone who tells you otherwise either hasn’t worked for it or lives in a utopia.

Hard Work Is Your BFF

My dad knew how to hustle. After establishing a small office on 42nd Street and 6th Avenue in New York, he started driving around the U.S. selling his product. Barely able to speak English, he started pitching it to the forest service, various engineers working for local municipalities, and anyone else who would listen. He would drive across the country several times a month, exhausted but determined to succeed.

As an early-stage entrepreneur, he was responsible for driving his product sales along with another partner. Every new sale or relationship gave him the strength to go further. Twenty years later, his company had grown to about 50 people, who manufactured gabions for Canada and all of the Americas. He retired at 55.

I realize that financial independence is not a top priority for everyone. And unless you win the lottery, it doesn’t happen easily. The news inundates us with supposed overnight successes. We just never hear about the 10 years of sweat, blood, and sacrifice that went in to a venture before it became well known. Keep doing your thing and don’t get distracted or easily discouraged.

You Don’t Need an MBA to Understand Business, But You Do Need Instinct

Nowadays, we are put under so much pressure to become educated in school, and often accrue debt at the start of our professional lives. But my dad did not graduate from college. I think he may have had the equivalent of an associate’s degree. What he did have was drive; charm; the “gift of gab”; and an insatiable curiosity about world events, personal finance, and economics.

He also had a sharp “sixth sense” about business. We all do to some degree. If something doesn’t make sense or seems too good to be true, it likely is. Scammers often prey on people who are afraid to ask questions about money for fear of looking dumb. Whether it’s the fine print on a loan or a return on an investment that doesn’t seem possible, there are no dumb personal finance questions.

Failure Sucks, But Never Let It Stop You

At one point in his career, my dad got kicked out of his own company by his investors. My parents’ car was repossessed. They nearly lost their apartment. For a few months, money became exceedingly tight, and their future looked grim.

Rather than throwing in the towel, my dad found new investors. He let his anger become a catalyst for reinvention, slowly regaining his clients one by one (or stealing them, depending on how you want to look at it). And yes, he enjoyed it.

Financial setbacks happen, and sometimes they are completely unexpected. That’s why protection in the form of insurance and emergency savings is essential, especially in our gig economy. Moreover, hitting some bumps (or craters) in the road does not give you a license to give up. Sure, a handful of people are exceedingly unlucky, but grit, determination, and mindset can take you just about anywhere.

Never Stop Learning About Money

Later in his life, my father became a student of the financial markets. He was completely self-taught, learning through networking, observing, doing, and reading publications such as the Wall Street Journal. There was no democratization of finance like there is today: no internet, no CNBC, and no Jim Kramer.

The markets were played by the elite. Day trading was impossible. But my dad taught himself about various financial instruments and plays: stocks, bonds, treasury-bond laddering, going long or short, hedging, and the relationship between a world event and its financial effect. For example, when bad weather hurt orange crops, he would go long on orange futures, knowing that scarcity creates demand.

Luckily, today people don’t have to learn all of this on their own like my father did. There are many sources of unbiased financial information that can help you make smart decisions. Knowing how to invest, the proper diversification of a portfolio, and how much one needs to live comfortably in retirement are some basics everyone should calculate.

The More You Give, The More You Get

My father was a big believer in paying it forward — in other words, giving to his family or to charity with no strings attached. He gave with great joy. He preferred giving anonymously, as he was a down-to-earth man until the end, and he shied from accolades.

That said, he always made sure he was protected. He kept a low profile and never lost sight of the fact that the world can be a tricky and treacherous place, particularly when it comes to money.

My father would be 91 this Father’s Day. I often wonder what advice he would give me in my current entrepreneurial ventures. One thing is for sure: I am as bullish on financial literacy as my dad was. He just didn’t know it.

Your Summer First Aid Guide

from Walgreens

Summer is a time for fun outdoor experiences. But sometimes splashing, hiking and adventuring in the heat can lead to accidents and injuries. From twisted ankles to sunburn to bug bites, here’s how to stay safe and avoid summer hazards.

Submersion injuries and drowning  

Swimming is the ideal way to cool off on hot summer days. But water also can be dangerous if you don’t take the proper precautions. Submersion injuries or near-drowning events, can happen in a matter of seconds. While children 5 years and younger have the highest risk, accidental drowning is also the second leading cause of death in people ages 5–24 years.

Prevent it:

• Don’t leave children unattended when near or in water.
• Only get into a pool, lake, ocean or other bodies of water if you know how to swim.
• Never swim alone. It’s a good idea to only swim when a lifeguard is present.
• Always wear a life jacket when boating.
• Learn CPR (Cardio Pulmonary Resuscitation).

Treat it: Follow the American Red Cross Chain of Drowning Survival:

• Recognize the signs of someone in trouble and shout for help.
• Rescue and remove the person from the water (without putting yourself in danger).
• Have someone call 9-1-1 and begin CPR if the person is not breathing until medical help arrives.

Twisted ankle

Sprains are twisted or torn ligaments that can quickly swell and cause pain. Ankle sprains are the most common type of sprains. They can happen when you walk or run on an uneven surface, twist your ankle too far or land awkwardly on your foot.

Prevent it:

• Wear appropriate shoes for the activity when hiking or playing sports.
• Watch your step when walking on uneven surfaces.

Treat it: 

Follow the RICE approach – rest, ice, compression, and elevation:

• Rest the injury for as long as your healthcare provider says to. Know that ankle sprains can take anywhere from days to months to heal.
• Ice the injured area with a cold pack as soon as possible. For the next couple of days, continue to use ice four to eight times a day for 15–20 minutes each time. 
• Compress your ankle with a bandage or elastic wrap.
• Elevate your leg to be higher than your heart when possible. This can help reduce swelling.

Heat-related illnesses

Hot, humid weather causes us to sweat, and for a good reason. Sweating is your body’s way of cooling itself off. But in extreme heat, your temperature may increase faster than your body can cool down. This can lead to heat-related illnesses, such as dehydration, heat exhaustion and heat stroke.

Prevent it:

• Schedule outdoor activities during the morning and evening hours, when it’s coolest. During the day, take plenty of breaks in the shade.
• Dress in loose-fitting, lightweight and light-colored, clothing.
• Drink plenty of water. Don’t wait until you’re thirsty to drink. Your fluid needs are higher in hot or humid conditions.  
• Be careful when exercising in the heat. You may need to dial back the intensity and duration of your workouts until you’re used to being active in hot weather.

Treat it:

• Know the signs of heat exhaustion and heat stroke:
• Heat exhaustion can cause heavy sweating, cool, pale or clammy skin, a fast, weak pulse, nausea and vomiting, dizziness, muscle cramps, tiredness, headache and fainting.
• Heat stroke can cause a body temperature above 103 degrees Fahrenheit, hot, red, and dry skin, a fast, strong pulse, nausea, dizziness, confusion and loss of consciousness.
• If you have signs of heat exhaustion, get out of the heat. Move to a cool place, loosen your clothing, put cool cloths on your body and take sips of water. If you’re vomiting or if your symptoms don’t get better with treatment, get medical help right away.
• If you have symptoms of heat stroke, call 9-1-1 at once. Heat stoke is a medical emergency.

Sunburn

Not only is sunburn painful, but the damage to your skin increases your risk of skin cancer. What’s more, sunburn hinders your body’s ability to cool itself down. It can also make you dehydrated.

Prevent it:

• Seek shade when you go outside.
• Wear a wide-brimmed hat, sunglasses and long sleeves and pants made from a tightly woven fabric.
• Apply a generous amount of a broad-spectrum sunscreen with a SPF 15 or higher to all exposed skin at least 30 minutes before you head outdoors. Reapply sunscreen at least every two hours or right after swimming, sweating or toweling off.

Treat it:

• Drink enough water. This can help replace fluids and prevent dehydration.
• Use a cool, wet washcloth on affected skin or take a cool bath.
• Apply topical aloe, a moisturizing cream or 1% hydrocortisone cream to your burned skin.
• Consider taking an over-the-counter (OTC) pain medication, such as ibuprofen, acetaminophen or aspirin, to reduce pain and fever.
• Avoid spending time in the sun until your sunburn is healed.

Bug bites

Mosquitoes, red ants and other insects often show up as unwanted guests at summer get-togethers. While they’re often harmless, their bites can be painful or itchy.

Prevent it:

• Use insect repellent on exposed skin. Choose one with 20–30% DEET. Apply the repellent as directed according to the package directions.
• Choose your clothing carefully. If you’ll be outside at night or in a wooded area, wear clothing that will protect you from bug bites. Wear long sleeves and pants, socks and closed-toed shoes.

Treat it:

• Apply an ice pack to reduce swelling.
• Try an over-the-counter (OTC) anti-itch cream, such as hydrocortisone cream, on mosquito bites and other bites that itch.
• Consider using an OTC pain medication for painful bites and stings.
• Prevention is often easier than treatment. Still, adverse summer events can happen when we least expect them. Knowing how to deal with common summertime misfortunes may help you feel better prepared as the weather warms up.

Sources:

https://www.cdc.gov/disasters/extremeheat/warning.html

https://www.aad.org/public/skin-hair-nails/injured-skin/treating-sunburn

https://www.cdc.gov/cancer/skin/basic_info/sun-safety.htm

https://www.aad.org/public/skin-hair-nails/injured-skin/bug-bites-and-stings

http://www.nsc.org/learn/safety-knowledge/Pages/news-and-resources-water-safety.aspx

http://www.redcross.org/news/article/Be-Safe-in-the-Water-with-the-Red-Cross

https://familydoctor.org/ankle-sprains-healing-and-preventing-injury/

https://www.cancer.org/cancer/skin-cancer/prevention-and-early-detection.html

https://www.cdc.gov/niosh/docs/2010-116/

https://www.cdc.gov/disasters/extremeheat/heat_guide.html

Green vs. Sustainable: What Is the Difference?

by Bridget Hillyer, May 30, 2018 in Homeowners Tips

Many consider the ’60s and ’70s to be the real beginning of the environmental movement, with the establishment of the United Nations Environmental Programme in 1972.  However, in recent years, the focus on protecting our planet has been an increasingly discussed topic. New information, better technology, alternate research and trendy lifestyle blogs seem to spring up constantly. This excess of information can make living your own environmentally conscious lifestyle difficult. Even the terminology looks designed to be confusing.

Let’s look at one of the biggest confusion culprits: Green vs. sustainable.

The Misconception

People may use the terms “green” and “sustainable” interchangeably, although they don’t mean the same thing. The words are similar in intention, with both focusing on a desire to protect the Earth and its natural resources, but that’s pretty much where the similarities end.

Green

Webster’s Dictionary defines green as, “concerned with or supporting environmentalism.” This makes a lot of sense to anyone who’s ever used or heard the term, but the big point here is the definition’s vagueness. How and why something gets classified as green isn’t covered. The area becomes even murkier when you consider the heavy use of the word in company marketing and product labeling. Right now, there just aren’t any hard and fast rules for the use of the word “green” in marketing.

The EPA has attempted to rectify this issue by working with independent standard developers to create a system for classifying products. This includes creating what the EPA calls “ecolabels,” which allow consumers to quickly see the environmental impact of potential purchases.  ENERGY STAR is an example.

Currently, participation in this process is optional for companies that label any portion of their products, services or mission statement as green. Guides have also been created, but the EPA states that “these guides largely address when and how very specific and narrow environmental attributes can be claimed, not how to construct a broad-based environmental standard or ecolabeling program.” Green as a description of products and services is just too vague to effectively regulate at this point.

Sustainable

The word “sustainable” doesn’t have the same definition issues. While the term “green” reflects the environmental movement in general, “sustainable” has clear-cut criteria built right into its definition. Sustainability takes the notion of green to the next level and challenges us to look deeper. Webster’s Dictionary describes it as, “of, relating to, or being a method of harvesting or using a resource so that the resource is not depleted or permanently damaged.” For a product, service or action to be considered sustainable, it cannot use any resource at a rate in which the resource is unable to be replenished. If a product uses bamboo and the company cuts down the bamboo faster than it can grow back, then the product isn’t sustainable.

The Lifestyle

With these definitions in mind, striving to be completely sustainable through movements such as Zero Waste is far more easily understood than it is undertaken. Sustainability has set requirements that going green doesn’t. There’s no wiggle room with the term.

However, that doesn’t mean striving towards a sustainable future isn’t worthwhile. Adapting our choices and mentalities is an important first step. We can be green while we all work towards being sustainable. Some may choose personal goals like switching to LED lightbulbs and installing water efficient showerheads. Others may choose more involved methods, like working towards a neutral carbon footprint. No matter how you decide to get started, consistency and knowledge are key. Protecting our planet is a goal we all can work towards, even while we’re still trying to get the differences between the terms straight.